Bill 70 Hurts Ontario’s Small Distillers

I’m going to start with schedule 2. Schedule 2 amends the alcohol and gaming regulations. It does a couple of things. When we had my briefing—and I want to thank the staff who showed up to do that. It’s a very complex bill and it took a long time. These are clearly people who care deeply about the work that they’re doing, and I think we have to acknowledge that being a public servant is an honourable profession. That said, they were not able to answer some substantive questions that we had in this briefing.

The Alcohol and Gaming Regulation and Public Protection Act addresses the tax rate on Ontario wine or wine coolers purchased in the shopping area of an authorized grocery store, or from a manufacturer operating the boutique. The tax will increase from 6.1% to 11.1%. The rationale for this was that because these boutique operators are now contained within a grocery store, they don’t have the overhead costs of having a cashier, so as a reward their taxes are now going up from 6.1% to 11.1%.

However, the main contentious piece in this, which I think caught Ontario craft distillers off guard entirely, is that spirits purchased from a distillery retail store will be taxed at 61.5% of the retail price, plus a 28%-to-38% litre volume tax and an 8.93-cent environment tax for each non-refillable container.

It’s really interesting, because we’ve heard how important listening is to this government. There are lots of conversations going on, and there’s lots of talk about the discourse and reaching out to the real people of this province. Well, the Ontario craft distillers had been reaching out to this government for quite some time, because they really wanted to follow this pattern that the Ontario Craft Brewers had, which was very successful after we got some of the taxation rates correct.

I think that the blindside experience that the Ontario craft distillers had with this particular piece of legislation is really almost unprecedented, because they had been in conversations with the government. There are two letters that they had written on May 16, 2016, and July 19, 2016, really working to try to work with this government, to usher in the same renaissance in distilling as seen in other jurisdictions where similar taxation measures have been adopted.

Their ask was to introduce legislation to replace the current markup and commission structure at on-site distillery retail stores with a tax on purchases of spirits. So they were working with the government—well, they thought they were working with this government, and they thought the government was listening. However, the press release that was issued following the fall economic statement reads as follows: “Ontario’s New Dispiriting Distillery Tax Deals Major Blow to Home Grown Small Batch Spirits; Future of Grain to Glass Distilling in Doubt.”

This, for us, demonstrates how wrong a government can get a policy when you don’t truly listen, when you don’t engage the people who have the real lived experience of trying to start a small business in the province of Ontario. It truly is a disconnect with the reality of businesses in the province of Ontario.

This press release—this is dated November 18, so immediately after the fall economic statement—goes on to say: “The Ontario Craft Distillers Association (OCDA) is calling on our elected representatives to reconsider the Wynne Government’s newly introduced distillery tax. On Wednesday, Finance Minister Charles Sousa introduced Bill 70, which includes a new 61.5% sales tax for stores owned and operated by Ontario’s small and independent distilleries. This tax is a major blow to the sustainability of distilleries working to provide Ontario farm-to-table, grain-to-glass spirits, and ignores the lessons of what works and what doesn’t from Ontario’s own wine and beer tax policy, as well as the successful spirits tax policies in places like British Columbia.”

This is a direct quote from the co-founder of the Yongehurst Distillery right here in Toronto: “We were expecting a spirit tax tiered by volume”—which works, Mr. Speaker. “This bill demonstrates that the Liberal government doesn’t support the growth of small businesses or a healthy and competitive domestic market. It’s disappointing for all of the Ontario businesses within our ecosystem that could have grown the economy organically to create long-term jobs and prosperity in every corner of the province.” And: “We were hoping for much more, there’s so much potential here.”

Now, it’s interesting to see where these Ontario craft distillers are. They’re everywhere from Beamsville to Guelph, Stratford, Johnstown, Elmira, Ottawa, St. Catharines, Hearst, Ayr, Concord, Bloomfield, Perth, Toronto, Niagara and Amherstburg. The important piece of this conversation is that we’ve had a government that has been talking about advanced manufacturing around food processing, around partnering with the farmers in the province of Ontario, around commercializing the research that we’ve invested in to create good jobs and to bring the grains that this province is so famous for to a marketable area to create jobs. In fact, Kitchener–Waterloo was also on a potential list as well.

The Ontario Craft Distillers go on to say that “taxing by litre means that an expensive-to-brew barrel-aged barley wine is taxed at the same rate as a straightforward lager. Products with high labour and ingredient costs aren’t discriminated against with a by-the-litre tax. Graduated taxation is necessary….” It is necessary, and this government knows that it is necessary.

It is interesting to see such blindness—wilful blindness, I’m not sure. But we have, obviously, received some feedback from people across the province on the particular issue of craft distillers. I received one from Matt Duimering. He goes on to say:

“Bill 70 is the government robbing businesses of their money. Especially small distilleries located around Ontario. Many of these distilleries’ primary income is via their storefronts. These distilleries employ local staff and suppliers. For example, Toronto Distillery Co. TDC only uses locally grown ingredients and a local mill to grind their grains for making their grain-based spirits.

“Small craft distilleries are dedicated to quality and creativity.”

This is one of the areas that the government has included in their own four pillars of building up Ontario, supporting small and medium-sized businesses, and yet they’ve introduced a measure in the first schedule of Bill 70 which will essentially make expanding, growing or maintaining these small craft brewers impossible.

Matt goes on to say, “It absolutely sickens and disgusts me that my government is trying to roll out this bill. Many jobs will be lost and dreams crushed.”

Corporate, large-scale Canadian distilleries and imported spirits are doing well in the province of Ontario. Why would this government specifically target the small and medium-sized distillers?

One person wrote in to the member from Parkdale–High Park. Her name is Daisy McCabe-Lokos. She goes on to say: “What a shame the provincial government doesn’t recognize the value in hard-working small business people who are doing great things for Ontario and our reputation as a province…. What is the justification?”

Another one—because there are three small distillers, I think, in Parkdale–High Park, and these people are now completely and utterly destabilized by this schedule. This is from Sunny Purewal. Sunny writes, “The Ontario government has introduced Bill 70, which contains a section (schedule 1, section 29) which calls for a 61.5% sales tax on liquor…. Taxing spirits on the basis of retail price is unfair to small distillers because they do not benefit from the cost savings of manufacturing at scale.”

So you can’t impose such a high tax and think that this sector is going to be resilient enough to manage it.

Finally—and this email went to the members from Cambridge and Kitchener Centre and Kitchener–Conestoga. This came from a local company that was hoping to start up a distillery in the Waterloo region. They write:

“My group and I are very confused. We are in the process (including having the investors in place and equipment ready to order) of setting up a craft distillery. We are in the process of negotiating lease locations in the KW-Cambridge (Hespeler) area.

“We have an excellent business plan. BDC is working with us. As I say, we have money committed.” They say they have a business plan that has growth opportunities for businesses in the local area.

“Now, in the last few days, with the introduction of Bill 70, and a sales tax of 61.5% on out-of-shop sales, our plans have come to a crashing halt. There is no way a craft distillery can be feasible” with that tax rate.

“A very promising new local business has been shut down!”

Do you think that this province can afford to lose any more jobs? Absolutely not. They require an answer, an informed answer. They asked an honest question, and this is the question that I will leave with you:

“If this is meant to shut down craft distilleries, then say so, so that we can conclude our plans and send investment back to our investors and tell them the Ontario government has made a conscious decision that Ontario does not want to see craft distilleries.

“If this result was unintended, then tell us this, and we need to know if the government is willing to work through this and bring back the proposals under Raise a Glass as they relate to craft distilleries.”

It goes on—you can see that it’s an emotional email because this is somebody’s dream. This is a way for our economy to have some strength and connection to the agricultural sector. He goes on to say:

“My group demands a well-thought-out answer. I await your reply. We have people in training for good jobs in our company, properties that we will have to pull back from, equipment orders that are now on hold and investors to explain this to.

“This certainly seems to be a total reversal aimed at destroying a budding industry.”

You can see, Mr. Speaker, that this tax is very anti-small business. The distillery association has been asking for a graduated tax, and this government completely rejected that out of hand. This does not make sense. It doesn’t. This is a finance bill. It should have a taxation structure that is supportive of small and medium-sized businesses and that recognizes that this connection with the agricultural industry has to move forward.

Read the full transcript of Catherine Fife’s response to Bill 70 here.